Today we’ll take a look at three different stock charts and how knowing how to read them can make you a better trader.
Line Chart
Line Charts are the most basic of stock charts and are drawn from the closing price of the stock each day. Line charts can be useful for looking at the big picture, but for traders, bar charts and candlestick charts provide much more information about the stock.
Bar Chart
Bar charts are very popular among traders. These charts are easy to read and offer more information than line charts. Looking at the chart above you can see what a bar chart looks like. Each bar consists of one vertical bar and two smaller horizontal bars. The vertical bar represents the trading range for the stock while the small horizontal bar to the left represents the stock’s opening price and the small horizontal bar on the right represents the stock’s closing price.
Candlestick Chart
Candlestick charts were created from the trading principles of a seventeenth century rice broker. Candlestick charts interpret stock movement in greater detail and can give signals about possible future movement of the stock. At first glance bar charts and candlestick charts look kinda alike, since they both use bars to indicate price range. With candlestick charts the vertical bar is wider and then color coded to indicate opening and closing price comparisons. As you can see on the chart above the candlesticks that are white represent a closing price that was higher than the open price and the red candlesticks indicate a closing price that is lower than the opening price. Later this week we will have a dedicated post about candlestick charting techniques and how traders can use candlestick patterns to help forecast the future movement of a given stock.
